The World Is Flat was released in 2005, but the title applies perfectly to this year’s investment banking bonuses: just swap in “bonus” for “world.”

While we saw the apocalypse and bonus meltdowns in 2008 and 2009, 2010 brought us recovery and higher bonuses.

The economy was better, banks were hiring again, and we had crawled our way out of the recession… or had we?

If this year’s investment banking revenue is any indication, that “recovery” was overblown – because this year’s numbers will be flat, flat, and more flat if my magic 8-ball and Excel spreadsheet are even half-correct.

Why Now?

Remember how this works: investment banks pay out bonuses to analysts 1 year after they start working, sometime in July or August.

Associates and senior bankers get paid at the end of the calendar year / at the beginning of the next calendar year, but here we’re focused on predictions for analysts.

We’re also doing this now because most banks have finished reporting Q1 2011 earnings, so we can look at recent investment banking revenue data and use that in our analysis.

And finally, making these predictions only a few months before real bonus numbers arrive also boosts my chances of being correct.

And he was right – I barely look at my bank accounts, I don’t know my yearly earnings until I sit down to calculate them, and I’ve gradually become less interested in bonus talk as well.

But at least back in 2008 I was still in the industry, and in 2009 and 2010 I wasn’t that far removed.

This year, though, I find myself less interested and less sympathetic to (senior) bankers – while they may not be destroying the world, it’s not exactly like they’re improving peoples’ lives or solving important problems either.

A lot happened over this past year, from massive natural disasters to political uprisings that toppled autocracies to Jack Bauer’s slaying of a certain terrorist leader.

Governments intervened more and more in banks’ affairs, and the future of fields like prop trading at banks isn’t too bright.

This is not a news site, so I’m not going to recount each major event; I would summarize the past year by saying, “Developed markets kept falling further into decay and bankruptcy, while emerging markets surged ahead.”

It’s no coincidence that Asia is excluded from that image at the top – that might be the only non-flat region of the world this year.

Yes, the most recent quarter looks better than the trailing 12 months, but that doesn’t mean much if your bank underperformed in the first half of this period (see: Citi, UBS).

Boutique & Middle Market Numbers

Smaller firms look a little better:

But if you remove the outliers from this set (Cowen and JMP) you get similar results to the bulge bracket numbers: median 1.6% revenue decline in the TTM period and 10.4% growth in the most recent quarter.

Getting this data is about as much fun as a root canal, so unless you want to jump in and do all the work for those 100 other banks this set won’t change much.

2011 Predictions

Based on these numbers, it seems like bonuses will increase by 0-10% this year.

My real guess is that bonuses won’t change at all.

But predicting a 0% change from last year seems too safe and overly pessimistic – even for me – so let’s just say 0% for the downside case and 10% at the high-end.

Last year’s top numbers were:

1st Year Top Tier: $50-$65K USD

2nd Year Top Tier: $65-$80K USD

And my predictions last year were:

1st Year Top Tier: $60-$70K USD

2nd Year Top Tier: $80-$90K USD

I was a little too optimistic back then, so by applying a discount for that and other secret factors, we can get to this year’s predicted range:

1st Year Top Tier: $55-65K USD

2nd Year Top Tier: $70-80K USD

I’ve increased only the bottom number to make the range narrower, and also because an increase on the high end seems less likely.

Numbers in London are similar but are paid in pounds instead, so just multiply by the exchange rate to get an estimate.

These numbers are all pre-tax – if you’re in NYC or London, wave goodbye to 50% of that bonus, and if you’re in Dubai or Saudi Arabia you can keep 100% of it.

But What About Numbers In…. [Insert Other Country Here]

Given my doomsday predictions above, you might wonder why I’m projecting everything in US Dollars and why there are no projections for other countries.

That’s mostly because the data is more difficult to find elsewhere, and because base salary and bonus numbers may be so different that this analysis no longer makes sense.

As far as other countries, though, you might see an increase in bonuses in regions where the economy is doing well (BRIC countries and Australia, for example) – but it’s hard to compare directly because pay in emerging markets is often much lower and a significant increase doesn’t mean as much.

2012 Numbers?

The most recent quarter showing more of an improvement than the trailing twelve months might indicate that we’re set for a bonus recovery next year.

But I wouldn’t bet the farm on it, because I don’t see the situation in developed markets improving unless governments undergo massive structural changes and spending is greatly reduced.

Flat to minimal growth next year seems like the more likely scenario, barring a cataclysmic event or economic boom.

The True Test

We’ll see what happens when bonuses are announced in a few months and I’ll write a follow-up piece on how accurate or inaccurate these predictions were.

Honestly not sure there and numbers are more difficult to come by for Big 4. I would imagine that base salaries are similar to IB but bonuses are far less because of lower fees, higher operating expenses, reduced hours, and so on. Someone else might be able to help here.

Yeah Australian base salaries are much higher with lower bonuses as a % of salary, think someone brought that up on the 2010 article. But then the cost of living in Australia is much higher as well (I’m paying a ridiculous amount for my apartment in Sydney, higher than Manhattan prices).

Really? I’m based in Melbourne and while the cost to actually buy a house is ridiculous the rent is comparatively cheap. My understanding was that Manhattan would be much more expensive than either melb or syd. Interesting.

Business/Finance Career related global planning question, since you are speaking of opportunities in developing markets

I am currently engaged to a South African girl whose father has decent business/finance connections. Do you think that South Africa has more potential ( for those who have some ties to the country) for an ambitous person long term then the USA?

I’m a South African with a PE/IB background in Europe/Asia. South Africa has tremendous opportunities for people in finance as well as for entrepreneurs. There’s been a hell of a brain drain so lots of gaps to fill (albeit with some challenges, see below). My friends in IB are earning in line with what I get in Asia (which pretty much is NY/London pay with much lower taxes) except their living costs are about a third of mine. As with anything in life though there’s a trade-off: I choose not to live there because the politics + crime is driving me nuts, but at the rate business is going I might have to go back because there’s money hanging on trees over there. Couple of things to note though: 1. Very hard getting work permits for foreigners so start early even if you are getting married, 2. Affirmative Action is likely to be an issue if you want to go into banking (ask your gf), 3. Connections are super important in SA, so if your gf’s dad is well-connected you’d be in with a good shot at making it. Have to agree with B though, a bit of London/NY before you head off will def go down well ito your reputation over there. Anyway, worst case just go to SA for a few years and have some fun in the sun, best case you buy yourself a few small African countries (next to one of mine). Either way you’ve already ‘won’, you got yourself a South African wife! Lucky man…

I’m an avid M&I reader, thanks for the great articles. I recently noticed that an MD I interviewed with circa 1 year ago was checking out my LinkedIn profile this week. Curiosity set in, so I checked out his company’s career site, and it turns out his group has an opening for an analyst. Should I shoot him a note expressing interest? Keep up with the great articles.

Dear Brian,
I don’t think the days of America are over. Overall we are in very good shape compared to Europe and Japan. We can’t compare ourselves to China because they are still developing and have a population more than three times our size.
If we want to improve our country, all we need to do is start seriously cutting spending in defense, increase spending in science, technology and research, and reform education.
Just my thoughts. And I love your articles!

While it may not end tomorrow, I think the growth phase of the country is over. 5-10 years ago I was more optimistic, but having lived in many different countries since then, my views have changed.

I wouldn’t tell you to go somewhere else just for the sake of leaving the country, but these days if someone has a connection to a faster-growing region it doesn’t make sense to go to the US given slower growth and the difficulty of getting a visa there.

Yes but I am super-busy right now trying to finish a new course – the last week of May is better. If you leave a comment with your real email address (only site admins can see that) I will contact you.

My friend at MS IBD (Brazil, 1st year analyst) makes 80k base + 80k expected bonus USD (he said that was what 1st year analysts got last year). I guess you should review your assumptions that bonus in emerging economies are lower. All my friends at other IBDs are expecting similar pays. I think Brazil is doing really well on the deal flow side.

Yes but that is MS… if you look at regional firms the pay is likely lower than that. It also depends on the market, for example in China the pay at local firms is significantly lower than international firms.

Not really. Traditionally, the top three banks compensation-wise in Brazil are BTG Pactual, Credit Suisse and Itau BBA (probably in this order). You can see two local names up there.

The bonus you mentioned on your forecasts are some 15% below that of a first year analyst at equity research for any of those three. IBD gets some 30-40% larger bonus than research (not so sure about s&t though). Btw, numbers won’t be much different for MS, GS, JP, BofA etc.

Hi, Brian
I learned a lot from your tips on the IB interviews? I get some chances to have interviews with some boutique IBs focusing on more technically DCM like distress debt. Can you share some advices?
Another would be main differences between interviewing the investment management industry and IB industry? Will u share some similarities or other tips?
Thanks.

I don’t know much about distressed debt specifically but distressed M&A and Restructuring are covered in the interview guide, I would just make sure you know the basics. Investment management is similar but you don’t get technical questions in the same way and your investment ideas / passion for investing are far more important.

You are taxed on the assumption that the bonus is what you earn every week. So $60K bonus = you get taxed on that bonus payment in terms of withheld taxes as if you earned $60K each week of the year. Federal + state + city taxes add up to around 50% at that level in NYC and London.

Yes but in practice you don’t get much of a refund, I forget exactly why (and have no desire to go back and look at the tax rules to figure it out) but effectively you still pay more in taxes than you would expect.

It breaks my heart when I interview kids with advanced degrees in computational neuroscience or biomedical engineering who gave up their lifelong dream of becoming a doctor because they “discovered” what they really wanted to do all along was move money from one part of the globe to another.

At this stage I would consider a top MBA program as your best chance for breaking in – with 13+ years experience that’s the best shot you have. And to be honest, IB is still a stretch at this stage – maybe think about trading instead since they care less about previous work experience.

Hey Brian!
First of all, great website, I’m a long time lurker.
To the question: I’m applying to an M&A position into a non-finance firm (e.g. a mall company, logistics company, holding, etc.). How is the pay in those areas? I assume the lifestyle is much better, but then I’m afraid I won’t get any bonuses. Do you think it’s any better than a regular job in the same company? (e.g. marketing, supply-chain, hr…)